Many in the textile industry have hailed the Budget for 2009-10 as a growth-oriented package in the right direction. The Rs 3140-crore allocation for the Technology Upgradation Fund (TUF) Scheme especially has been welcomed. Other happy news for the industry include provision of enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95%, increasing allocation for Market Development Assistance (MDA) scheme and extending interest subvention of 2% on pre-shipment credit for employment oriented export sectors such as textiles up to the end of FY 2010. Besides, providing debt relief to the cotton farmers, constitution of a task force to examine scope of extending loan waiver scheme to the loans taken from private moneylenders and investment linked tax exemptions for warehousing facilities for storing agricultural produce coupled with abolition of Commodity Transaction tax on Cotton are expected to boost cotton production in the country. However, though the rationalisation of excise duty structure on man-made fibre and yarns is a step towards formulation of National Fibre Policy, it is likely may lead to higher prices of raw material for production of blended textile items, because the global demand favours more blended textile products than of pure cotton.

The reduction in Customs duty on bio-diesel from 7.5% to 2.5% is expected to encourage use of green power and help reduce air pollutant levels. Moreover, abolition of Fringe Benefit Tax (FBT) on the value of certain fringe benefits provided by textile companies to their employees will help in reducing the tax outgo. The Budget has exempted Service Tax on “Commission paid to foreign agents” and “Transport of goods through road,” which provides a big relief for the exporters. The industry feels that the Government should have completely exempted textile exporters from the ambit of service tax net.

But there are shortfalls too. The Budget has not reinstated the benefit of deduction under section 80 HHC to the textile sector. There is also no provision in the Budget to compensate the exporters for derivative losses suffered by the exporters due to volatile foreign exchange markets. And finally, the measure that shocked the man-made fibre industry is the 4% Excise Duty increase on man-made fibres, yarn and fabrics. During 2005-06, when the excise duty on PFY was 16%, the total production of PFY was 10,75,252 m tonnes, but in 2007-08, when the excise duty came down to 8%, the total production has gone up to14,20,088 m tonnes, an increase of 32%, as compared to 2005-06. This shows the need to give a boost to synthetics, which today complains of lack of level playing field.